Changes To Note
- If the fund wants to allow the IRS to discuss its tax return with the paid preparer who signed it, check the Yes box in the area
where the officer of the fund signed the return. See below for details.
- The tax rate applicable to settlement funds has been reduced. See the instructions for line 16 on page 4 for details.
How To Get Forms and Publications
Personal computer.
You can access the IRS Web Site 24 hours a day, 7 days a week, at www.irs.gov to:
- Download forms, instructions, and publications.
- See answers to frequently asked tax questions.
- Search publications on-line by topic or keyword.
- Send us comments or request help by e-mail.
- Sign up to receive local and national tax news by e-mail.
You can also reach us using file transfer protocol at ftp.irs.gov.
CD-ROM.
Order Pub. 1796, Federal Tax Products on CD-ROM, and get:
- Current year forms, instructions, and publications.
- Prior year forms, instructions, and publications.
- Frequently requested tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
- The Internal Revenue Bulletin.
Buy the CD-ROM on the Internet at www.irs.gov/cdorders from the National Technical Information Service (NTIS) for $21 (no handling fee)
or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD-ROM for $21 (plus a $5 handling fee).
By phone and in person.
You can order forms and publications 24 hours a day, 7 days a week, by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most
forms and publications at your local IRS office.
General Instructions
Purpose of Form
Form 1120-SF, U.S. Income Tax Return for Settlement Funds, is used by designated and qualified settlement funds to report transfers
received, income earned, deductions claimed, tax due, and distributions made.
Who Must File
All section 468B designated and qualified settlement funds must file an annual income tax return on Form 1120-SF.
When To File
Generally, a fund must file its income tax return by the 15th day of the 3rd month after the end of the fund's tax year.
If the due date falls on a Saturday, Sunday, or legal holiday, the fund may file on the next business day.
Private delivery services.
Funds can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for tax
returns and payments. The most recent list of designated private delivery services was published by the IRS in October 2001.
The list includes only the following:
- Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, Second Day Service.
- DHL Worldwide Express (DHL): DHL Same Day Service, DHL USA Overnight.
- Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day.
- United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus,
and UPS Worldwide Express.
The private delivery service can tell you how to get written proof of the mailing date.
Extension.
File Form 7004, Application for Automatic Extension of Time To File Corporation Income Tax Return, to request a 6-month extension of
time to file.
Who Must Sign
The return must be signed and dated by the administrator of the fund.
If an employee of the fund completes Form 1120-SF, the paid preparer spaces should remain blank. In addition, anyone who prepares Form 1120-SF but
does not charge the fund should not complete that section. Generally, anyone who is paid to prepare the return must sign it and fill in the Paid
Preparer's Use Only area.
The paid preparer must complete the required preparer information and:
- Sign the return, by hand, in the space provided for the preparer's signature (signature stamps and labels are not acceptable).
- Give a copy of the return to the administrator.
Paid Preparer Authorization
If the fund wants to allow the IRS to discuss its tax return with the paid preparer who signed it, check the Yes box in the signature area
of the return. This authorization applies only to the individual whose signature appears in the Paid Preparer's Use Only section of the fund's
return. It does not apply to the firm, if any, shown in that section.
If the Yes box is checked, the fund is authorizing the IRS to call the paid preparer to answer any questions that may arise during the
processing of its return. The fund is also authorizing the paid preparer to:
- Give the IRS any information that is missing from the return,
- Call the IRS for information about the processing of the fund's return or the status of any related refund or payment(s), and
- Respond to certain IRS notices that the fund has shared with the preparer about math errors, offsets, and return preparation. The notices
will not be sent to the preparer.
The fund is not authorizing the paid preparer to receive any refund check, bind the fund to anything (including any additional tax liability), or
otherwise represent the fund before the IRS. If the fund wants to expand the paid preparer's authorization, see Pub. 947, Practice Before
the IRS and Power of Attorney.
The authorization cannot be revoked. However, the authorization will automatically end no later than the due date (without regard to extensions)
for the filing of the fund's tax return for the following year.
Assembling the Return
Attach schedules in alphabetical order and other forms in numerical order after Form 1120-SF.
Complete every applicable entry space on Form 1120-SF. Do not write See Attached instead of completing the entry spaces. If more space is
needed on the forms or schedules, attach separate sheets using the same size and format as on the printed forms. If there are supporting statements
and attachments, arrange them in the same order as the schedules or forms they support and attach them last. Show the totals on the printed forms.
Also, be sure to enter the fund's name and employer identification number (EIN) on each supporting statement or attachment.
Where To File
File Form 1120-SF with the Internal Revenue Service Center, Philadelphia, PA 19255.
Tax Year and Accounting Method
A qualified settlement fund's tax year is the calendar year and the fund must use the accrual method of accounting.
Rounding Off to Whole Dollars
The fund may show amounts on the return and accompanying schedules as whole dollars. To do so, drop any amount less than 50 cents and increase any
amount from 50 cents through 99 cents to the next higher dollar.
Recordkeeping
Keep the fund's records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Usually, records that
support an item of income, deduction, or credit on the return must be kept for 3 years from the date the return is due or filed, whichever is later.
Keep records that verify the fund's basis in property as long as they are needed to figure the basis of the original or replacement property.
The Fund should keep copies of any returns filed. They help in preparing future and amended returns.
Depository Method of Tax Payment
The fund must pay the tax due in full no later than the 15th day of the 3rd month after the end of the tax year. The two methods of depositing fund
income taxes are discussed below.
Electronic Deposit Requirement
The fund must make electronic deposits of all depository taxes (such as employment tax, excise tax, and fund income tax) after December
31 of the calendar year following any calendar year in which the fund deposited more than $200,000 of such taxes. Once the fund is required to use the
Electronic Federal Tax Payment System (EFTPS), it must continue to use EFTPS in all later years.
If the fund is required to use EFTPS and fails to do so, it may be subject to a 10% penalty. If the fund is not required to use EFTPS, it may
participate voluntarily. To enroll in or get more information about EFTPS, call 1-800-555-4477 or 1-800-945-8400. To enroll online, visit
www.eftps.gov.
Depositing on time.
For EFTPS deposits to be made timely, the fund must initiate the transaction at least 1 business day before the date the deposit is due.
Deposits With Form 8109
If the fund does not use EFTPS, deposit fund income tax payments (and estimated tax payments) with Form 8109, Federal Tax Deposit
Coupon. If you do not have a preprinted Form 8109, use Form 8109-B to make deposits. You can get this form by calling 1-800-829-1040. Be sure to have
your EIN ready when you call.
Do not send deposits directly to an IRS office; otherwise, the fund may have to pay a penalty. Mail or deliver the completed Form 8109 with the
payment to an authorized depository (i.e., a commercial bank or other financial institution authorized to accept Federal tax deposits). Make checks or
money orders payable to that depositary.
To help ensure proper crediting, write the fund's EIN, the tax period to which the deposit applies, and Form 1120-SF on your check or money
order. Be sure to darken the 1120 box on the coupon. Records of these deposits will be sent to the IRS.
If the fund prefers, it may mail the coupon and payment to: Financial Agent, Federal Tax Deposit Processing, P.O. Box 970030, St. Louis, MO 63197.
Make the check or money order payable to Financial Agent.
For more information on deposits, see the coupon booklet (Form 8109) and Pub. 583, Starting a Business and Keeping Records.
If the fund owes tax when it files Form 1120-SF, do not include the payment with the return. Instead, mail or deliver the payment with Form 8109 to
a qualified depositary, or use EFTPS, if applicable.
Estimated Tax Payments
Generally, the following rules apply to the fund's payments of estimated tax.
For more information on estimated tax payments, including penalties that apply if the fund fails to make required payments, see the instructions
for line 18 on page 4.
Overpaid estimated tax.
If the fund overpaid estimated tax, it may be able to get a quick refund by filing Form 4466, Corporation Application for Quick Refund
of Overpayment of Estimated Tax. The overpayment must be at least 10% of the fund's expected income tax liability and at least $500. File Form 4466
before the 16th day of the 3rd month after the end of the fund's tax year but before the fund files its income tax return. Do not file Form 4466
before the end of the fund's tax year.
Interest and Penalties
Interest.
Interest is charged on taxes paid late even if an extension of time to file is granted. Interest is also charged on penalties imposed for failure
to file, negligence, fraud, gross valuation overstatements, and substantial understatements of tax from the due date (including extensions) to the
date of payment. The interest charge is figured at a rate determined under section 6621.
Penalty for late filing of return.
A fund that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a
month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is more than 60 days late is the smaller of
the tax due or $100. The penalty will not be imposed if the fund can show that the failure to file on time was due to reasonable cause. Funds that
file late must attach a statement explaining the reasonable cause.
Penalty for late payment of tax.
A fund that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is
not paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if the fund can show that the failure to pay on time was due to
reasonable cause.
Trust fund recovery penalty.
This penalty may apply if certain excise, income, social security, and Medicare taxes that must be collected or withheld are not collected or
withheld, or these taxes are not paid. These taxes are generally reported on Forms 720, 941, 943, or 945. (See Other Forms That May Be Required
below.) The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to have been responsible for collecting,
accounting for, and paying over these taxes, and who acted willfully in not doing so. The penalty is equal to the unpaid trust fund tax. See the
Instructions for Form 720 or Pub. 15 (Circular E), Employer's Tax Guide, for details, including the definition of responsible persons.
Other penalties.
Other penalties can be imposed for negligence, substantial understatement of tax, and fraud. See sections 6662 and 6663.
Other Forms That May Be Required
The fund may have to file some of the following. See the form for more information.
Form W-2,
Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements. Use these forms to report wages, tips, and other
compensation, and withheld income, social security, and Medicare taxes for employees.
Form 940
or Form 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return. The fund may be liable for FUTA tax and may have to file Form
940 or Form 940-EZ if either of the following applies:
- It paid wages of $1,500 or more in any calendar quarter during the current calendar year or the preceding calendar year or
- It had at least one employee who worked for the fund for some part of a day in any 20 or more different weeks during the current calendar
year or 20 or more different weeks in the preceding calendar year.
Form 941,
Employer's Quarterly Federal Tax Return. Employers must file this form quarterly to report income tax withheld, and employer and employee social
security and Medicare taxes. Also see Trust fund recovery penalty above.
Form 945,
Annual Return of Withheld Federal Income Tax. File Form 945 to report tax withholding from nonpayroll distributions or payments including pensions,
annuities, IRAs, gambling winnings, and backup withholding.
See Trust fund recovery penalty above.
Form 1096,
Annual Summary and Transmittal of U.S. Information Returns.
Forms 1099-DIV, INT,
and MISC. These information returns are for reporting dividends and distributions, interest income, and miscellaneous income.
When reporting taxable distributions to claimants, use the appropriate information return to report the distribution. For example, if the
distribution is for wages, report the distribution on Form W-2.
For more information, see the Instructions for Forms 1099, 1098, 5498, and W-2G, and Regulations section 1.468B-2(l).
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